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Tax Talk

Health Care Act Provisions

Friday, December 14, 2012

Starting in 2013, the Health Care Act imposes a 62.1% increase in the employee portion of the Medicare payroll tax (the hospital insurance tax part of FICA). It will go from 1.45% to 2.35% on AGI over $200,000 (single); $250,000 (married filing jointly or surviving spouse); and $125,000 for married persons filing separately.

In addition, the Health Care Act imposes a 3....8% tax (often termed as "unearned income Medicare contribution") on investment income for taxpayers with mAGI over $250,000 (married filing jointly) or $200,000 (single). There is also the all-new definition of what is considered an investment income: in addition to interest, dividends, and capital gains this new form of "penalty" applies to royalties, rents, annuity distributions, and gross income from passive activities as so defined under Sec 469 passive loss rules.

And as if the above mentioned was not enough, the floor for IRC 213 medical expense deduction will increase from current 7.5% to 10% of AGI for regular income tax purposes (there is an exception: taxpayers over age 65 by the end of the tax year).


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